Inflation is a key economic indicator that helps policymakers gauge the health of the economy. The Federal Reserve closely monitors inflation data to make decisions about monetary policy, including interest rates. The Fed’s preferred inflation gauge, the personal consumption expenditures (PCE) price index, cooled overall in September, according to recent data released by the Bureau of Economic Analysis.
The PCE price index is considered a more comprehensive measure of inflation compared to the consumer price index (CPI), as it includes a wider range of goods and services. In September, the PCE price index increased by only 0.2%, below economists’ expectations of a 0.3% rise. This marks a slowdown from the 0.4% increase in August. On an annual basis, the PCE price index rose by 4.4% in September, slightly lower than the 4.6% increase in August.
The slowdown in inflation in September can be attributed to a few key factors. One factor is the easing of supply chain disruptions and shortages that have driven up prices for goods like cars and appliances. Additionally, the pace of price increases for services, such as healthcare and rent, also moderated in September.
While the cooling of inflation may provide some relief to consumers who have been grappling with higher prices, it is important to note that inflation remains elevated compared to pre-pandemic levels. The Fed has been closely monitoring inflation dynamics as it considers when to start tapering its asset purchases and potentially raise interest rates. The central bank aims for inflation to average around 2% over the long term, but the recent spike in prices has raised concerns about the possibility of sustained high inflation.
The Fed has signaled that it is prepared to take action to address inflation if necessary, but it has also emphasized that it expects the current spike in prices to be transitory. The central bank has reiterated its commitment to achieving maximum employment and stable prices, which are its dual mandates.
Overall, the cooling of the Fed’s preferred inflation gauge in September is a positive sign that inflation pressures may be starting to ease. However, policymakers will continue to closely monitor inflation data to ensure that the economy remains on a stable path.